Adairs : ADH 1H FY2022 Results Presentation

Adairs Limited

1H FY22 Results Presentation

21 February 2022

onlyuseersonal	ASHLEY GARDNER
MARK RONAN
MANAGING DIRECTOR &	CHIEF FINANCIAL OFFICER
CHIEF EXECUTIVE OFFICER

	1H FY22 Summary	1
	Strong progress made on strategic objectives …	.. however COVID disruptions impacted financial performance
	Adairs store growth continues	Store closures impacted sales but omni strategy enabled LFL sales up on PCP
	► 2 new Homemakers opened, 4 stores upsized in the half	► Group sales (pre-Focus)-5.7% to $229.3m due to COVID-related store closures with
	► Store floorspace (GLA) up +3.8% in 1H FY22 (+8.6% in last 12 months)	31% of Adairs trading days lost (versus 12% in PCP)
	► Favourable environment for further store expansions to support growth	► Group LFL sales +2.7%1 (excluding Focus)
	Adairs - Linen Lovers	► Group online sales +8.2% to $97.6m; (42.6% of Group Sales)
	Gross margin softer in line with expectations
only	Approaching 1 million members (+10% in last 12 months)
	►
	► Continues to be a differentiated program for customers and a key strategic	► Underlying2 Group gross margin rate (pre-Focus) 62.1%
use	asset for Adairs	- Adairs gross margin -380bps to 64.0% (+320bps v FY20)
	Online Sales 43% of total group sales	- Mocka gross margin -230bps to 51.1%
	► Online sales continues to grow across all brands	Underlying2 Group EBIT of $30.0m (-50.1% v FY21 +32.8% v FY20)
	► Total online sales for the half +185% on FY20	► Underlying Group EBIT margin declined to 13.1% (24.8% in 1H FY21; 12.5% in 1H FY20)
	Acquisition of Focus on Furniture	► Management estimate that COVID related store closures reduced Group Sales by
ersonal		~$35-40m and Group EBIT by ~$18-20m in the period.
	► Adairs acquired Focus on Furniture, a vertically integrated omni-channel
	Balance sheet, dividend and DRP activated
		furniture designer and retailer operating in Australia
	► December and January results in line with expectations	► In country stock levels are strong across all three businesses
	Adairs - National Distribution Centre transition	► Post-Focus acquisition net debt at period end of $89.6m

► Transition the new National Distribution Centre commenced in September ► Supply chain consolidation project will be complete by June 2022

► 8.0 cent per share fully franked interim dividend declared and DRP activated

Note 1: Like-for-like sales growth ("LFL") has been adjusted for any store closures and is calculated on a store-by-store daily basis (where only stores open on the same day in each corresponding period have been included).

Note 2: Refer to Appendix 5 for reconciliation of underlying results to statutory results.

Sales bridge ($m)

Underlying EBIT bridge ($m)

The impact of COVID disruptions

2

Managing the business1 through COVID-19 was the main contributor to lower 1H FY22 Sales and EBIT and should not be recurring in the medium term

onlyuse

ersonalExplanation:

• Adairs COVID store closures: Management estimate of sales and associated EBIT lost due to government mandated store closures. Note that on 20 October 2021, Adairs advised that the value of total sales and associated EBIT foregone as a result of mandated store closures over the first 16 weeks to be c.$28-32m and $12-15m respectively. These store closures continued in majority until Week 15 in NSW and Week 18 in Victoria, hence the estimated sales and EBIT impact of store closures is higher in the above bridges.

• Mocka AU courier disruptions: Management estimate of lost sales and additional costs incurred from COVID-related courier disruptions in Australia.

• Adairs warehousing disruptions: Management estimate of the costs associated with managing COVID disruptions across its warehouses and the decision to extend the Moorabbin warehouse lease. Note 1. Excludes Focus (not owned in 1H FY21 and only contributed 26 days in 1H FY22).

-3.0cps

+8.0 cps

Interim

dividend

8.0 cps

only Sales $229.3 million

useersonalNote 1: Referenced results are underlying and exclude the impact of (i) the acquisition of Focus on Furniture which was only owned in the last 26 days of 1HFY22, (ii) AASB 16 Leases, (iii) Focus and Mocka acquisition related transaction costs, (iv) the JobKeeper wage subsidy benefit and; (v) one-offcosts associated with the transition to the NDC. Refer to Appendix 5 for reconciliation to statutory results.

Group result1 - 1H FY22

3

Financial performance down on record FY21 but remains well ahead of FY20 (pre-COVID) levels

		v 1H FY21	v 1H FY20		($ million)
		-5.7%	+27.2%			Store sales
				Online sales
		+2.7% (LFL)	+30.5% (LFL)			Total sales
				Online % of total sales
						Gross margin
	Online Sales
					Online freight costs
	to Total Sales	+550bps	+2,360bps
			Gross profit
	42.6%					Costs of doing business
						EBITDA
						Depreciation
	Gross Margin	-400bps	+140bps			EBIT (pro-forma, ex Focus)
			Focus EBIT contribution
	62.1%
			EBIT (inc Focus)
						Interest
						Tax
	Underlying
					NPAT
	EBIT	-45%	+45%
	$33 million					% Sales

Adairs	Mocka		Group
Underlying	Underlying	Underlying	Underlying	Change	Change
HY22	HY22	HY22	HY21	v HY21 (%)	v HY20 (%)
131.7	-	131.7	152.8	(13.8%)	(9.8%)
63.2	34.3	97.6	90.2	8.2%	184.6%
194.9	34.3	229.3	243.0	(5.7%)	27.2%
32.4%	100.0%	42.6%	37.1%
124.8	17.6	142.4	160.7	(11.4%)	30.1%
(6.2)	(4.4)	(10.6)	(8.7)	21.5%	153.2%
118.6	13.2	131.8	152.0	(13.3%)	25.2%
(90.2)	(7.3)	(97.5)	(86.9)	12.2%	23.8%
28.4	5.8	34.3	65.1	(47.4%)	29.4%
(4.1)	(0.2)	(4.2)	(4.9)	(13.7%)	9.3%
24.4	5.7	30.0	60.2	(50.1%)	32.8%
-	-	2.9	-
24.4	5.7	32.9	60.2	(45.3%)	45.4%
(1.0)	-	(1.0)	(0.8)	28.3%	71.8%
(7.3)	(1.5)	(8.8)	(17.5)	(49.6%)	29.9%
16.1	4.2	23.1	41.9	(44.9%)	51.3%

Gross margin %		64.0%	51.1%	62.1%	66.1%	-400 bps	+140 bps
Gross profit %		60.8%	38.3%	57.5%	62.5%	-510 bps	-90 bps
Costs of doing business %		46.3%	21.3%	42.5%	35.8%	+680 bps	-110 bps
EBITDA %		14.6%	17.0%	14.9%	26.8%	-1,180 bps	+30 bps
EBIT (pro-forma) %		12.5%	16.6%	13.1%	24.8%	-1,170 bps	+60 bps
EBIT %		12.5%	16.6%	13.6%	24.8%	-1,120 bps	+110 bps
NPAT %		8.2%	12.2%	9.5%	17.2%	-770 bps	+990 bps

Lower levels of rent rebates in 1H FY22 leading to higher occupancy costs COVID-relatedwarehouse inefficiencies

Higher salary and wages costs to support our store teams during periods of store closures which was not supported by JobKeeper wage subsidies in 1H FY22 as it was in 1H FY211.

Investments in support office team and digital initiatives to drive future growth

Total sales remain well above 1H FY20 levels (+9.6%)

Adairs store sales -13.8%and -3.4%on a like-for-likebasis (adjusting for store closures) Adairs online sales +1.6% to $63.2m, representing 32.4% of total sales

Adairs - 1H FY22

4

Financial performance in the half

► Adairs sales -9.4%% to $194.9m driven by COVID-related store closures which resulted in 48% of trading days lost in VIC and 50% lost in NSW (31% lost for Adairs overall).

-

only-

-

► Adairs gross margin softened in 1H FY22, finishing -380bps to 64.0% as a result of global supply chain cost increases, higher delivery costs to online customers and additional promotional activity. Gross margin, however, remains significantly above 1H FY20 levels (+320bps).

► CODB was +9.6% reflecting:

-

-

-

-

► Adairs underlying EBIT -54.2% to $24.4m. The estimated lost sales opportunity associated with COVID store
useclosures was c.$35m, with an associated EBIT impact of c.$15m.
	Historic performance
ersonal	Stores		Online			% Online				67.8%						24.7%
										64.0%
				177.9	215.0	194.9			62.8%
			164.4				60.6%					14.0%
149.0	62.2									13.3%	12.6%		12.5%
24.3	31.9	63.2
17.1
				32.4%
			28.9%				60.9%
11.5%	14.8%	17.9%
131.9	140.1	146.0	152.8	131.7								20.9	21.9	22.4	53.2	24.4
	1H FY18	1H FY19	1H FY20	1H FY21	1H FY22	1H FY18	1H FY19	1H FY20	1H FY21	1H FY22	1H FY18	1H FY19	1H FY20	1H FY21	1H FY22
				Sales							Gross margin			EBIT and EBIT margin

Note 1: JobKeeper wage subsidy benefit received in 1H FY21 was repaid to the Government in 2H FY21.

			Adairs
($ million)	Underlying	Underlying	Change	Change
HY22	HY21	v HY21 (%)	v HY20 (%)
Store sales		131.7	152.8	(13.8%)	(9.8%)
Online sales		63.2	62.2	1.6%	98.3%
Total sales		194.9	215.0	(9.4%)	9.6%
Online % of total sales		32.4%	28.9%
Gross margin		124.8	145.8	(14.4%)	15.3%
Online freight costs		(6.2)	(5.7)	10.2%	60.1%
Gross profit		118.6	140.2	(15.4%)	13.6%
Costs of doing business		(90.2)	(82.3)	9.6%	15.4%
EBITDA		28.4	57.9	(50.9%)	8.4%
Depreciation		(4.1)	(4.7)	(13.8%)	5.2%
EBIT		24.4	53.2	(54.2%)	9.0%
Interest		(1.0)	(0.8)	28.3%	83.3%
Tax		(7.3)	(15.5)	(52.8%)	7.7%
NPAT		16.1	36.9	(56.5%)	6.9%
% Sales
Gross margin %		64.0%	67.8%	-380 bps	+320 bps
Gross profit %		60.8%	65.2%	-430 bps	+220 bps
Costs of doing business %		46.3%	38.3%	+800 bps	+230 bps
EBITDA %		14.6%	26.9%	-1,230 bps	-20 bps
EBIT (pro-forma) %		12.5%	24.7%	-1,220 bps	-10 bps
EBIT %		12.5%	24.7%	-1,220 bps	-10 bps
NPAT %		8.2%	17.2%	-890 bps	+850 bps